Parents rethink 529 savings as AI clouds college’s value

Nataliya Konovalova opened tax-advantaged 529 plans for her sons when they were babies and asked relatives to contribute instead of buying birthday gifts. Now that the boys are eight and 10, she is less certain they will attend college. After discussing AI’s effect on entry-level jobs with her husband, who works in tech, the couple cut their contributions in half. “I honestly don't think they will go to a traditional four-year college,” she said.

The plans let families withdraw investment gains tax-free for qualified education costs, including tuition, books, laptops, and room and board. The number of 529 plans in the US has risen 80% since 2010, while the average balance has more than doubled. But parents are weighing that tax advantage against uncertainty about college costs, hiring prospects and the value of a degree. In an Intuit Credit Karma/Harris poll of 921 parents of children in grades K-11, more than a quarter said they were reconsidering how much to save for education, and 15% had already reduced their savings.

David Graham, a retired physician in Billings, Montana, stopped contributing to his children’s 529s two years ago. He estimates his 12-year-old son has $50,000 in the account and his eight-year-old twin daughters have $15,000 each. Graham thinks college could still make sense for his son, but doubts it will for his daughters. If any of them choose a degree, he said, he is prepared to pay without relying on the accounts’ tax benefits. “If he wants to go to school, I'll just write a check,” he said.

Other families are choosing flexibility rather than abandoning education savings altogether. Omar Khan invests for his two children through taxable brokerage accounts, accepting taxes on gains so the money can support other plans, such as buying a home or starting a business. Financial planner Michael Reynolds said about 30% of his parent clients were redirecting some funds from 529s as they questioned college’s future value.

Matthew Crowson, a physician and Harvard Medical School faculty member, continues saving for his sons, aged three and five, but hopes the rules will expand to cover more paths. Apprenticeships and continuing education already qualify; in 2018, some funds became usable for private high schools, and in 2024 some 529 money could be rolled into a Roth IRA tax-free. Other parents, including software executive Matthew Seeger, still value the plans as a way to spare children college debt. The debate persists even among families worried about AI: a Common Sense Media report found that nine in 10 children had used AI, but only 26% expected it to have a mostly positive effect on their lives.